New U.S. Reporting Rules Applicable to Certain Corporate Transactions


On or before January 17, 2012, domestic and foreign corporations will be required to report to both the IRS and their shareholders (on Form 8937) any corporate transaction which occurred in 2011 (including mergers, acquisitions, spin-offs, stock splits, redemptions and distributions) that affected a shareholder’s U.S. tax basis in the stock of the corporation. An exception applies if the corporation determines that all of its shareholders are exempt recipients, including foreign and domestic corporations (other than S corporations), foreign holders, tax-exempt organizations and real estate investment trusts. For transactions occurring after January 1, 2012, a corporation is required to submit Form 8937 to the IRS within 45 days of the transaction (unless the transaction occurs in December, in which case the return must be filed by January 15 of the following year) and to provide a copy of Form 8937 to shareholders by January 15 of the year following the calendar year in which the transaction occurred. The requirement to provide a copy of Form 8937 to shareholders does not apply to shareholders that the corporation knows, or may assume under applicable rules, is an exempt recipient or from which the corporation obtains an exemption certificate.

In general, Form 8937 describes the nature of the transaction, the affect of the transaction on the basis of the stock of the corporation, the method of calculating the change in basis and the applicable tax rules upon which the change in basis is based. A corporation can satisfy its reporting obligation by either (i) filing Form 8937 with the IRS and mailing a copy of such return to its shareholders or (ii) posting a Form 8937 on its website and keeping the Form 8937 accessible on its website for 10 years.

These reporting rules apply to both public and private corporations and will thus result in the disclosure of the economic and tax terms of otherwise private transactions. Moreover, the wide range of transactions that could trigger these reporting rules will mean that corporations, including foreign corporations, must consider the U.S. tax consequences of transactions that could potentially affect a holder’s U.S. tax basis in its stock (e.g., A distribution by a corporation to its shareholders that exceeds the corporation’s “current and accumulated earnings and profits” will generally result in a reduction in a holder’s basis in the stock of the corporation.). As a consequence of these reporting requirements, corporations should consider establishing procedures to (i) identify transactions that could affect the U.S. tax basis of their stock, (ii) establish the status of their shareholders as exempt recipients and (iii) prepare and submit Form 8937 to the IRS and their shareholders on a timely basis.

The penalty for a failure to timely file Form 8937 with the IRS is $100 (with a calendar year maximum penalty of $1.5 million). The penalty for a failure to timely provide a copy of Form 8937 to each shareholder is also $100 (with a calendar year maximum penalty of $1.5 million). Thus, a failure to satisfy these reporting requirements can result in a potential maximum penalty of $3 million per year.

If you have any questions regarding this new development or would like to discuss any other tax concerns, please contact any of the attorneys listed below. You may also view the alert in the PDF linked below.

PDF - New_US_Reporting_Rules.pdf

Kenneth K. Bezozo

Brandon S. Jones

Sam Lichtman

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